VW to overhaul India business amid market pressures, company memo shows

By Aditi Shah

NEW DELHI (Reuters) -Volkswagen Group is restructuring its business in India, a key growth market for the carmaker where it wants to invest more but is grappling with policy changes and growing competition, according to an internal memo reviewed by Reuters.

The move comes as the company faces India's biggest-ever import tax demand of $1.4 billion for evading levies, and as its market share languishes despite more than two decades of operations in the world's third-largest car market.

Skoda Auto, a Volkswagen Group brand, has been leading the carmaker's India strategy since 2018.

The company has hired external experts to conduct a thorough review of its systems and processes and recommend improvements, Piyush Arora, chief of the local unit Skoda Auto Volkswagen India said in a memo sent to employees on September 8.

"Engaging a third party will provide a neutral perspective and some out-of-the-box ideas. I request you to support and cooperate with the team," he said in the memo, which was reviewed by Reuters.

The memo did not detail any changes on investment and jobs.

Skoda is deeply committed to the country and will invest in new technologies and manufacturing even as it faces shifting market trends and increasing competitive pressures, Arora added.

The exercise, which he said is the beginning of a "high performance organisation" journey and a course correction, coincides with the departure of close to 10 senior level executives at the carmaker over the past few weeks, two sources aware of the exits said.

This includes Nalin Jain, its finance chief and India board member; Sarma Chillara, head of human resources; Deepti Singh, head of external affairs; Hemant Malpani, head of cost control; and Shriniwas Chakravarthy, head of quality management, the two sources said, adding some resigned and some were asked to leave.

Skoda Auto Volkswagen India said that personnel changes correspond with standard company HR processes, without elaborating.

"India is a key market in Skoda Auto's internationalisation plans. We are always considering new business opportunities and are evaluating various options to ensure the best possible solution to implement our strategy in the highly dynamic Indian market," the company said in a statement.

Skoda is at a crucial point and needs to finalise its next leg of investment in India, a key market for the carmaker outside Europe given it no longer has a big presence in China and has exited Russia.

With stricter vehicle fuel efficiency norms set to kick in from 2027, all carmakers will have to introduce EVs and Skoda and VW currently do not sell any.

The company has plans to adapt Volkswagen's EV technology from China for India in which Skoda CEO Klaus Zellmer has previously said it will invest and is looking for a partner with "local roots". It has an agreement with India's Mahindra & Mahindra to supply some EV components.

The restructuring is to ensure the company is lean and agile to compete with nimbler rivals ahead of making new investments, said a third source with direct knowledge of the matter.

Despite being in the country for over two decades, the carmaker has struggled to become a significant player. Volkswagen and Skoda brands together account for just 2% of India's 4 million units a year car market lagging newer rival Kia and established players like Toyota.

Even as the carmaker's revenues in India have nearly tripled to $2.15 billion from about $766 million five years ago, its profit in India has dropped to $10.6 million from about $85 million over the same period, regulatory disclosures showed.

Skoda Auto Volkswagen is also embroiled in a legal tussle with India's tax department over allegations it misclassified imports of some Audi, VW and Skoda cars to evade higher duties.

If the company loses, it will need to fork out $2.8 billion including penalties and interest.

(Reporting by Aditi Shah; Editing by Kim Coghill)